Frax reinvent the business aviation industry

 - October 4, 2007, 5:12 AM

Undoubtedly, it is still too early to gauge all the effects the September 11 terrorist attacks will have on any segment of aviation. But the signs are emerging that business aviation–with its added security element of direct pilot/passenger interaction, as well as its easy-on, easy-off access–will probably soar above current levels. As in years past, each new group of business aviation experts learns from what is occurring around them. What’s more important, however, is what these professionals do with that new knowledge.

When aircraft management firms first began a focused incursion of traditional corporate flight department territory in the 1950s, purists yelled foul, predicting the downfall of corporate aviation. But it didn’t happen. The battles heated up in the 1980s as NBAA members demanded aircraft management firms be struck from the association’s membership roles. But NBAA now welcomes management firms as regular members.

It was really no surprise then that when fractional-ownership providers appeared to begin eating into the market share of corporate aviation in the last decade, many aviation department managers again expected the sky to fall. Reports of some fractional salesman bypassing aviation department managers for direct access to a company’s executives only fueled the fires of resentment.

The fractionals have been going strong for more than six years, and as aviation department managers look back to the practical lessons–both good and bad–that aircraft management firms taught them, AIN explored what managers have gleaned from this newest segment of business aviation, now that much of the initial panic and fury about fractional ownership seem to have subsided.

The predictions that flight departments would fall in the face of this new fractional competitor have, for the most part, proved untrue. NBAA president Jack Olcott said, “We don’t think the fractionals are a threat to traditional flight departments. Business aviation has grown overall [since they appeared].”

Certainly fractional ownership has been a windfall for the airframe and engine manufacturers. Wichita-based AvData Inc. reports 425 new business jets have been delivered to the fractionals in the past five years and 4,000 shares of these aircraft have been sold. AvData said a large number of new fractional shareholders are companies with no previous involvement in business aviation. Fractionals now represent approximately 5.5 percent of the total business jet fleet.

FOARC chairman Jim Christiansen, the new vice president of national accounts for EJA’s NetJets program, said, “One thing fractionals have done quite effectively is deliver simple access to a simple service.”

Fractionals found their niche somewhere between charter and traditional flight departments. He added that charter providers made it pretty easy for the fractionals to walk in and take this piece of business away. “Charter doesn’t deliver consistency because their fleets are often made up of aircraft from corporations selling off excess capacity.”

“That extra lift from a fractional share comes in handy when your fleet is totally utilized,” said Bill Henderson, chief pilot at General Motors. “But while I respect what the fractionals do, they don’t offer the same level of service.” Surprisingly, General Motors recently created its own in-house Part 135 charter operation.

“The fractionals are a supplement to regular corporate aviation, not a replacement,” noted Paul Anderson, director of aviation at United Technologies. His company supplements its current fleet with an eighth share of a NetJets Hawker 1000. “We look at the fractional share as a tool, like any other aircraft,” he said. “But before buying in, you need a transportation plan that tells you what the objective of buying the fractional share is.”

Olcott pointed out, “A flight department manager must realize his business is to provide the best transportation possible no matter what that takes.”
“Don’t kid yourself, though,” Anderson countered, “a fractional aircraft is not a part of your core fleet. It requires more planning because you don’t have that much control. That has made us look more closely at the communication we have with NetJets as well.”

Dollars and Cents
A heightened awareness of the dollars and cents issues is another valuable lesson. “The fractionals have taught regular flight departments to be more aware of costs and to be more proactive about them than reactive,” said Nel Sanders, a partner with aviation consulting firm Conklin & de Decker. “The fractionals have done their research. They can accurately predict costs on a five-year basis. Flight department managers now realize that understanding their costs and their relationship to traditional travel is something they need to focus on.” Fractionals have also proved that “nothing in this world is so good that it sells itself,” Olcott emphasized. “Aviation department managers need to be proactive about communicating their department’s value, before the fractionals come knocking.”

Traditional flight departments have consistency on their side when viewed from a crewmember’s perspective. In both fractional and charter flying, passengers never know which pilots they’ll see on the next flight. “Our passengers like to see the same faces up front,” said GM’s Henderson. “This makes passengers feel more secure.” He believes that “professional corporate pilots have more of a commitment to their people, which I think translates into better service and security.”

In the real world, the fractionals’ promise of flexibility may not always hold true. Henderson said, “With the fractionals, the shareholders must often work at the fractional’s convenience rather than their own.” Anderson added, “Sometimes our customers get confused looking for our tail number and finding only ‘QS’ tail numbers on the ramp.”

Although everyone should be attentive to liability issues, the question arises of who has the exposure after an accident involving a fractional aircraft? According to Sanders, “When someone owns an eighth share and is not actually flying on his own airplane, which is being flown by a variety of crews, everyone involved has an exposure. I advise clients to take additional insurance.”

The fractionals promise one-stop shopping of sorts. “Don’t believe everything you hear,” Sanders added. “The fractionals give you a nice package, but it’s like a microwave dinner. It looks good, tastes good and is easy, but it is more expensive than doing it all on your own.” But fractional one-stop shopping has also demonstrated the advantages of a group buying service for aircraft parts and supplies.

And what happens when a large quantity of high-time ex-fractional jets hits the aircraft resale market in a short period of time, especially if the economy is not percolating at peak when those aircraft must go? “If we have a good Hawker 800 for sale at the same time as a high-time fractional aircraft, our well maintained aircraft should be at the high end of the market,” said Anderson. But Erik Tabb, general manager of Fort Lauderdale, Fla.-based Aero Toy Store, a business aircraft brokerage house, said, “That may not necessarily be true. While the aircraft with the lowest time and best interior and avionics used to sell first, that mindset is changing. Today, consumers have become much more price conscious.”

Without doubt, the fractionals have cast a great spotlight on business aviation overall and will continue to do so, despite the possible economic and political turmoil that may be ahead. “There is a great demand for business aviation services today. We’re just scratching the surface,” Olcott concluded.